Fonterra Increases 2010/11 Forecast Milk Price by 30 cents to $6.90 per kgMS

The increase reflects the continuation of high international dairy prices further into the season.

12/10/2010 --- Fonterra Chairman Sir Henry van der Heyden said the Board’s decision to raise the forecast Milk Price reflected the continuation of high international dairy prices further into the 2010/11 season. Chief executive Andrew Ferrier said global markets for key dairy ingredients remained finely balanced, with solid demand being underpinned by some growth in supply out of the northern hemisphere.

“International dairy market prices have generally held up better than initially expected when we made the opening forecast back in late May. Offsetting this good news has been a stronger New Zealand dollar which is eroding the value of dairy export returns for our farmers,” said Mr Ferrier. “We had a solid result at the 1 December globalDairyTradeTM trading event, with average prices 1.5% above the 2 November event. This has added to our confidence in the season’s outlook.”

Mr Ferrier said Fonterra was reviewing the potential impact of the recent dry conditions around New Zealand on anticipated production levels, and would update the Board in due course.
Sir Henry said that while farmers would no doubt welcome news of a higher forecast milk price, they were potentially facing much higher input costs if current dry weather continued.
“It is still early in the season, and some good falls of rain could help a lot, but milk production in the North Island is declining and we know farmers in some regions are struggling,” said Sir Henry. Sir Henry said Fonterra was working with regional drought committees, as well as Dairy NZ and the Rural Support Trust to provide advice and assistance to farmers.

The increase in the underlying Milk Price will lead to an increase in the monthly payments to farmers, although there is no change to the percentages in the Advance Rate Schedule (which dictates the proportion of the Milk Price paid in advance to farmers during the season via monthly milk cheques).